Desired Cash On Cash Return for a Rental Property

[Kevin Castaneda]

What Cash-On-Cash (CoC) return do you like to see on your rental properties, and at what point in your loan term do you calculate your CoC from when deciding a property is worth purchasing?

I'm doing some returns base-lining for SFR rental properties in my local area which happens to be San Antonio, Texas. Lots of BP investors say they're getting +20% Cash-on-Cash (CoC) returns on their rentals but never describe how they get their calculations! For example, maybe they're not including CAPEX or property management costs and are effectively "inflating" their calculations! I for one think you should always include repairs/maintenance, vacancy, management, and CAPEX in your calculations ....While high returns like this sound great outloud, I'm also skeptical since the CoC percentage can be so greatly influenced by refinancing to a small investment basis (eg. BRRRR strategy). While CoC returns can be extremely high with a small investment basis, over time this percentage will shrink closer to your property's Cap Rate.

So, how do you approach CoC to determine if an investment is worth your time? Or you focus on a high Cap Rate since this number is closer to the CoC percentage you'll get once the property is fully paid off?